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How do you create a balance sheet for a small business?

How do you create a balance sheet for a small business?
A balance sheet for a small business helps the owner to track its assets, liabilities, and equity. Balance sheets give an overview of the small business’ financial standing for a specific reporting period. It is a financial statement normally used by business owners to track their financial growth and health.
Are you tired of several websites offering an unhelpful balance sheet template? This article has everything you need to know to create a balance sheet. Let’s get started!

What is a balance sheet?

A balance sheet is a financial statement prepared to determine the financial standing of a business for the current period of operations. A small business balance sheet presents the business’ total assets, liabilities, and equity. Unlike other financial statements which are used to determine performance over a period of time, a balance sheet is used for a specific date.

What are the uses of a balance sheet?

One of the primary uses of a balance sheet is to determine a company’s liquidity. Liquidity refers to how the total assets of a company can cover its short-term obligations. This gives a good impression to potential lenders of your small business’s financial position.
You can find several websites offering a balance sheet template to aid you in its preparation. A balance sheet example would be listing your assets in one column, and the liabilities and equity in another one.

A step-by-step guide on preparing a balance sheet for a small business

A balance sheet is an essential tool for a company to obtain financial information about the business and its standing. It is one of the primary financial statements a small business prepares for the period. While you can easily find a balance sheet template online, knowing how to create it yourself is a good thing to learn.
Here’s a step-by-step guide on how to create a simple balance sheet without using a balance sheet template.
Step 1: Identify the specific period you will report the financial statement.
A small business balance sheet is prepared for a specific date, unlike an income statement which is prepared over the years. Typically, the period a business owner prepares the balance sheet on the last day of their calendar year.
Large companies prepare balance sheets quarterly. For small businesses, preparing it once a year will already do. Make sure to divide the balance sheet into two columns, one for assets and the other one for liabilities and owner’s equity.
Step 2: Identify your assets.
Assets are companies’ property that will provide the entity economic benefits in the future. Assets can either be tangible assets or intangible assets. In a balance sheet, assets are typically divided into two classifications— current assets and noncurrent assets.
What are current and non-current assets?
Current or short-term assets are properties that can be realized within a year. This includes, but is not limited to, cash, accounts receivable, prepaid expenses, and inventories.
Non-current assets, or long-term assets, are properties that a company can realize and use for more than one reporting period. Some examples of non-current assets include land, building, equipment, and other depreciable assets.
Once you identified the current assets and non-current asset line items, sum their amounts to arrive at your total assets.
Step 3: Identify your liabilities
Liabilities represent the debts owed by the business to its creditors. A company’s liabilities can be classified either as current liabilities or noncurrent liabilities. A debt ratio is computed to know how leveraged a business is. Hence, a balance sheet can be a way to know if the company needs to start reducing debt.
What are current and non-current liabilities?
Current liabilities, or short-term liabilities, are the financial obligations that are due and payable within one year from the company’s reporting period. Some examples of current liabilities are accounts payable and notes payable.
Meanwhile, non-current liabilities, or long-term liabilities, are the company’s financial obligations that are payable more than one year after the reporting period. Examples of non-current liabilities include bank loans and bonds payable.
After determining the short-term and long-term liabilities line items, sum their totals to arrive at the total liabilities.
Step 4: Identify your equity
Owner’s equity, or shareholder equity, represents the residual interest of the company’s assets over total liabilities. This is also referred to as the company’s net worth.
The owners' equity also includes the business’s net income for the period in the retained earnings section. If the business owner performed withdrawals for the period, that would also be reflected in the shareholders' equity section.
how is owner's equity presented in a balance sheet?
Owner’s equity is presented below the total liabilities in a balance sheet. Shareholder’s equity for corporations includes share capital, retained earnings, and deductions to share capital.
For sole proprietors, a typical balance sheet will only include owner’s equity representing capital contributions and retained earnings.
Step 5: Add total liabilities and owner’s equity and compare the sum to the company’s assets
To check whether the balance sheet is balanced, you need to sum the liability and equity totals and compare it to the total amount of assets. Don’t stress yourself out if you don’t get to balance the balance statement the first time.
What you need to do is double-check the amounts for each line item. Most small business owners commit mistakes on accounts that have high volume transactions, such as accounts receivable and accounts payable.

What are the benefits of a small business balance sheet?

Balance sheets provide financial data which helps small business owners to track their financial health. A small business balance sheet also provides an overlook of the company’s financial position. This is the best way to analyze your business’s assets, liabilities, and equity.
A small business balance sheet provides comparability.
Using a balance sheet, you can easily compare the totals of your assets and liabilities. This provides you with an analysis of whether your assets can cover your short-term or long-term debt.
You can also compute important metrics for your small business, such as debt ratio and debt-to-equity ratio.
Through this, a small business owner can know if it’s time to acquire more assets or reduce some debts.
A good small business balance sheet attracts potential creditors and investors.
A balance sheet reports on the business growth. If creditors and new investors see that your balance sheet shows a favorable financial health, they will be attracted to invest or lend money to the business.
This will improve cash flow that can be used to acquire other assets needed by the small business.
Small business balance sheets aid business owners in making financial business decisions.
A small business balance sheet shows what the business owns and what the business owes. These data can be used to make important decisions, such as how to improve the company’s net worth or how much equity should still be contributed.
Moreover, regularly updating balance sheets will help the company monitor its budgetary requirements.
A balance sheet can be used for forecasting purposes.
You can compare previous balance sheets to forecast the growth of your company's assets and liabilities. You could also have an analysis of how liquid, solvent, or productive your company is.
A balance sheet can be used by other users of financial statements.
Other users of financial information, such as the government, consumers, employees, etc., can also benefit from the balance sheet. They are curious about the company's financial standing and how can this impact their lives.

How Simplesheets can help you prepare your financial statements?

By using a balance sheet template, you can save time and effort in preparing one. Simplesheets is a website that offers services to help your small business. Many business owners have tried different complex accounting software and balance sheet template that just wasted their time. In Simplesheets, it is guaranteed that the balance sheet template is comprehensible and easy to navigate through Microsoft Excel.
You can easily input your assets, liabilities, and equity in the balance sheet template provided by Simplesheets. Simplesheets will not only help you with your balance sheet but also with other business functions such as payroll, invoicing, scheduling, hiring, and more!
Create your own balance sheet statement with Simplesheets’ balance sheet template now!

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